Kohl’s has received at least two takeover bids in the $64-to-$65 per share range, and could in the next few weeks determine whether to accept or reject any of them.
But on Tuesday, Cowen Equity Research issued a report raising some doubt on whether any bids on the table already would trigger a deal, while indicating that “incoming investor feedback is split on whether a deal could be completed that is higher in price.”
Cowen also reported that a sale-leaseback of Kohl’s real estate, amounting to $2 billion to $3 billion, would be required to finance a deal, though the possibility of such a sale is uncertain.
After media reports on the bids surfaced in late January, Kohl’s stock price soared 36 percent to over $63. The Menomonee Falls, Wisc.-based, value retailer acknowledged that it received letters expressing interest in acquiring the company.
Kohl’s stock on Tuesday was trading at around $59.60.
“Overall, sentiment is mixed regarding the potential Kohl’s takeout, but a majority of investors believe a deal could be completed over the initial offer price and that a sale leaseback of $2 billion to $3 billion would be needed to acquire Kohl’s. Regarding the potential for another offer, incoming feedback is split between believing another bid may materialize or not,” Cowen wrote in its report.
“Our take is that based on Kohl’s trading price and various probabilities and prices, there could be a 20 to 30 percent chance, more or less, of a deal at $64 to $65 per share, and a 30 to 40 percent chance, more or less, of a deal getting done at $75 or higher. Alternatively, if the deal is not completed at a 40 percent, probability, more or less, the stock may or may not trade down to $43 to $55.”
Cowen, which does in-depth investment analysis and research across a wide array of sectors, said in its report that Kohl’s off-mall format remains “meaningfully attractive to a multitude of investors given the retail sector shift to off-mall for better traffic trends and convenience for shoppers.”
Kohl’s real estate is 35 percent owned by the company, excluding ground leases. The company values its real estate at $7.8 billion, according to a 10K document cited by Cowen.
Cowen Research estimated that stores could be sold for $10 million to $14 million each, depending on the location and traffic. Also, Kohl’s distribution centers remain “particularly attractive in the market due to their limited supply and we note that Kohl’s owns 12 of its 15 distribution centers,” Cowen reported.
According to Cowen, Kohl’s turnaround accelerated last year amid activist investor activity, and has faced “some hurdles regarding inventory management and the women’s business. That said, it is important to acknowledge the robust digital business, positive early innings of the Sephora partnership and strong growth in the active segment.” Sephora entered about 200 Kohl’s stores last fall and is expected to reach at least 850 stores by 2023.”
The report also indicated that Kohl’s is positioned to achieve fiscal 2023 goals ahead of schedule, though the stock has had a “muted” reaction.
Cowen said that a bid process takes a week to a month and it expects another announcement from Kohl’s management on the bids within the next couple weeks.
Kohl’s has been under intense pressure for months from shareholder activists pushing for change in the composition of the retailer’s board, and pushing the company to consider strategic alternatives to raise shareholder value, including possibly selling the company or re-engineering its dot-com and brick-and-mortar stores into two separate companies, which the Hudson Bay Co. did last year with its Saks Fifth Avenue, Saks Off 5th and Hudson’s Bay brands. The separation strategy remains controversial within the retail industry.
Kohl’s 2021 results will be discussed in detail during its earnings call on March 1.